The dollar amounts held by Bangladesh鈥檚 commercial banks dropped to a five-year and six-month low in December 2024, reflecting the severe impact of Bangladesh Bank鈥檚 mismanagement amid a prolonged dollar crisis.
The central bank鈥檚 directive to clear significant foreign dues within a short timeframe, its purchase of dollars to artificially inflate reserves, and its failure to control market manipulation have collectively destabilised the forex market, pushing the dollar price to as high as Tk聽128 from Tk聽120 in the reporting month, according to market experts.
The sharp rise in dollar prices has further burdened borrowers, requiring significantly higher funds to meet their foreign currency obligations.
In December, commercial banks鈥� gross foreign currency balance fell to $4,255 million, down from $4,383 million in November, according to Bangladesh Bank data.
It marked the lowest level since June 2019, when balances stood at $4,191.18 million.
The reserves had been consistently declining in recent months, from $6,088 million in July to $5,265 million in August, $4,981 million in September, and $4,615 million in October.
Bankers attributed the steep decline to BB Governor Ahsan H Mansur鈥檚 instruction for banks to clear a large portion of foreign dues by December 2024, exacerbating the dollar shortage.
Financial experts criticised the central bank for not extending repayment deadlines for major payments, which could have mitigated market pressure.
Adding to the crisis, Bangladesh Bank halted dollar sales to commercial banks to prevent further reserve depletion while simultaneously purchasing dollars to prop up reserves. This dual approach has worsened the already strained market.
Despite an increase in remittance inflows and export earnings in recent months, commercial banks鈥� dollar holdings failed to recover.
From July to December of FY25, remittances rose to $13.77 billion, compared with $10.9 billion in the same period of FY24, while export earnings grew to $24.53 billion from $21.74 billion in FY24.
Foreign direct investment, however, has plummeted amid political instability, compounding the economic challenges.
The dollar shortage, which has plagued the banking sector since early 2022, continues to ripple through the country鈥檚 macro-economy, fueling inflation and driving up production and energy costs.
The crisis deepened after the political transition, as foreign debt repayment pressures mounted following the swearing-in of the interim government.
The burden of the dollar shortage has not been evenly distributed, with a few banks holding a disproportionate share of reserves, leaving many others unable to meet customers鈥� foreign currency demands.
The exchange rate has surged steadily, from Tk 85.80 in December 2021 to Tk 104 in December 2022 and Tk 110 in December 2023.
By December 2024, the rate reached Tk聽128, significantly raising import costs and escalating production and consumer prices.
Businesses warn that the higher dollar rates will exacerbate inflation, further reducing consumer purchasing power and worsening the country鈥檚 economic crisis.
